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Why Badger Daylighting Ltd. Tanked 7.38% on Monday

Badger Daylighting Ltd. (TSX:BAD), North America’s leading provider of non-destructive hydrovac excavation services, announced its third-quarter earnings results Monday morning, and its stock reacted by plummeting 7.38% in the day’s trading session. The stock now sits more than 22% below its 52-week high of $36.22 reached back in April, so let’s break down the quarterly results and the fundamentals of the stock to determine if now is the time to buy.

Breaking down Badger’s third-quarter performance

Here’s a quick breakdown of 10 of the most notable financial statistics from Badger’s three-month period ended September 30, 2017, compared with the same period in 2016:

Metric Q3 2017 Q3 2016 Change
Hydrovac service revenue $129.41 million $103.79 million 24.7%
Total revenue $141.29 million $113.17 million 24.8%
Revenue per truck per month — quarterly average $34,125 $28,062 21.6%
Adjusted EBITDA $38.88 million $33.52 million 16.0%
Adjusted EBITDA margin 27.5% 29.6% (210 basis points)
Net profit $16.19 million $11.94 million 35.6%
Net profit per share (EPS) $0.44 $0.32 37.5%
Cash flow from operating activities before changes in working capital adjustments per share $1.02 $0.90 13.3%
Hydrovacs added during quarter 25 9 177.8%
Hydrovacs in operation during quarter 1,081 1,028 5.2%

Comments regarding its outlook

In the press release, Badger made comments regarding its outlook on the rest of 2017; here are two notable quotes from the release:

“Badger anticipates that increased year-over-year activity realized in the second and third quarters will continue into the fourth quarter of 2017. The overall macro-economic environment in both Canada and the U.S. is anticipated to be supportive of ongoing infrastructure, construction, and oil and gas activity levels for the remainder of 2017.”

“Due to the nature of construction operations, Badger does anticipate a seasonal slow-down in its northern markets due to winter weather, the exact nature and timing of this impact is variable and dependent on regional specific weather.”

Was the 7.4% sell-off warranted?

It was a solid quarter overall for Badger, which has been an ongoing theme for the company in 2017, as its revenue increased 24.9% to $366.45 million, its adjusted EBITDA increased 19% to $90.84 million, and its EPS increased 60.3% to $0.93 in the first nine months of the year compared with the year-ago period.

That being said, I do not think the sell-off on Monday was warranted, but I think it has led to an attractive entry point for long-term investors for one fundamental reason in particular: valuation. Badger’s stock now trades at just 23.5 times fiscal 2017’s estimated EPS of $1.19 and only 17.7 times fiscal 2018’s estimated EPS of $1.58, both of which are very inexpensive given its current double-digit percentage earnings-growth rate; these multiples are also inexpensive compared with its five-year average price-to-earnings multiple of 24.9.

It’s worth nothing that Badger pays a monthly dividend of $0.038 per share, representing $0.456 per share annually, which gives its stock a respectable 1.6% yield. It has also raised its annual dividend payment for two straight years, and its 15.2% hike in August has it positioned for 2018 to mark the third consecutive year with an increase.

Badger’s stock is up more than 15% since I first recommended it in July 2015, but it’s down more than 12% year to date and more than 22% from its 52-week high in April. I think the recent weakness represents an attractive entry point for long-term investors, so take a closer look and consider initiating a position today.

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Fool contributor Joseph Solitro has no position in any stocks mentioned. Badger Daylighting is a recommendation of Stock Advisor Canada.

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